ECB paper quantifies effects of green QE

August 15, 2022|Written by Graham Caswell|Financial Conduct Authority, Securities and Exchange Board of India, Bundesbank, European Central Bank, Federal Reserve

An ECB paper on green quantitative easing, the Bundesbank’s first climate-related disclosure, a warning that higher rates won’t solve fossil fuel inflation and more from this week in green central banking.

ECB paper examines green quantitative easing

The European Central Bank (ECB) has published a working paper examining the effectiveness of green quantitative easing in climate change mitigation. The study used a global integrated assessment model and focused only on corporate bonds held by monetary authorities.

Results show a reduction of global temperature by 0.04ºC by 2100, but also suggested that green QE would lead to a partial crowding out of private capital in the green sector. In contrast, the modelled effects of carbon pricing suggest that a global carbon tax of US$50 per tonne would be four times more effective.

However, the authors conclude that green quantitative easing may be an effective complementary policy instrument, especially if governments fail to coordinate on introducing substantial and global carbon pricing.

Bundesbank publishes first climate-related disclosure

The Deutsche Bundesbank has published its first climate-related financial disclosure, outlining how it incorporates climate-related risks into its operations and partially reporting the emissions associated with its €10.4bn own funds portfolio.

The carbon footprint of the central bank’s holdings is estimated to be the equivalent of 0.13 tonnes of CO2 per million euros invested, or 1,352 tonnes in total. However, this represents only a small fraction of the greenhouse gas emissions associated with the portfolio as bank-financed emissions were not covered.

Structured around the recommendations of the Task Force on Climate-related Financial Disclosures, the disclosure says the Bundesbank intends to add sustainability to the criteria it applies in the management of its holdings. Negative screening for breaches of international standards is employed, but no securities have been excluded as a result.

The report comes as Bundesbank president Joachim Nagel revealed that the central bank is conducting a climate risk stress test for the German banking system, examining the effects of an abrupt rise in carbon prices on borrowers and lending institutions.

Indian regulator consults on green and blue bond standards

The Securities and Exchange Board of India, India’s securities and commodity market regulator, has issued a draft update of its sustainable bond framework to align with international standards and improve the demand for eligible securities.

The SEBI is seeking public comments on how to “amplify the definition of green debt securities” while reducing compliance costs for issuers and avoiding perverse incentives leading to greenwashing. The draft framework also introduces and encourages the concept of “blue bonds”, designed to fund the sustainable use of ocean resources. Seven activities eligible for blue bond funding are listed, including sustainable fishing, restoring coral reefs, developing offshore wind, and eco-tourism.

High rates won’t solve fossil fuel inflation, warn US group

Dependence on fossil fuels and the climatic consequences of burning them are key drivers of inflation that will not be solved by higher interest rates, a US research and campaigning group has told the Federal Reserve.

In a new campaign video, Positive Money US claims that interest rate hikes are an imprecise tool which won’t tackle the supply-side causes of current inflation and risk damaging recovery from the pandemic.

Geopolitical events such as the war in Ukraine can have catastrophic effects on US domestic energy prices, it warns, with large oil companies reaping huge profits. In contrast, renewables offer stable prices, lower energy bills and energy independence and security, while at the same time reducing the emissions that are driving global heating and the climate crisis.

Positive Money US is a not-for-profit organisation working to “reimagine money, banks and our economy for the wellbeing of people, communities and the planet”.

UK regulator to crack down on greenwash

The UK’s Financial Conduct Authority (FCA) has said it will examine ESG claims made by hedge funds and private equity firms in an effort to combat mislabelling, misleading claims and other greenwashing.

In a letter to chief executives of alternative and responsible fund managers, the financial regulator said that “firms offering products should expect to be subject to review to ensure marketing materials accurately describe their product, with funds offering clear and consistent disclosure”.

Last year, the FCA released guiding principles on the design, delivery and disclosure of ESG and sustainable investment funds. This was followed by a comprehensive strategy document published in June.

This page was last updated August 15, 2022

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